Question

In: Finance

Consider a bond with a coupon of 4.6 percent, five years to maturity, and a current...

Consider a bond with a coupon of 4.6 percent, five years to maturity, and a current price of $1,046.10. Suppose the yield on the bond suddenly increases by 2 percent.

a. Use duration to estimate the new price of the bond. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. Calculate the new bond price using the usual bond pricing formula. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Solutions

Expert Solution

a. Use duration to estimate the new price of the bond

a. Using duration, the new price of the bond is estimated at $953.39

Workings:

b. Calculate the new bond price using the usual bond pricing formula

b. The new bond price using the usual bond pricing formula = $958.38

Workings:


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